In general, personal finance is related to the application of financial principles to monetary decisions of an individual or family unit. Personal finance typically takes into account financial risks and future events in determining how the individual or family unit obtains, budgets, saves, and spends financial resources. Components of personal finance may include the monitoring and management of various items, such as bank accounts, investment accounts, retirement accounts, credit cards, consumer loans, social security benefits, insurance policies, income tax, etc.
Financial planning is an important aspect of personal finance. Financial planning often includes the steps of assessment, goal setting, planning, execution, and monitoring and reassessment. Assessment involves the evaluation of the financial situation of an individual or a family by creating personal balance sheets and income statements. Personal balance sheets may include a list of personal assets (e.g., home, car, stocks, bonds, or other assets) and values of those assets, as well as a list of personal liabilities (e.g., loans, mortgages, credit card debts, or other liabilities). Income statements may list income and expenses of a person or family.
Goal setting involves creating a list of financial goals, such as setting an age of retirement, a net worth at retirement, a deadline for purchasing a home, a deadline for paying off a loan, etc. Planning then determines the actions that need to be taken to reach the financial goals. Such actions may include reducing unnecessary expenses, increasing employment income, and reallocation of investments. Once made, the plans are executed, sometimes with assistance from accountants, financial advisors, lawyers, and other professionals. In addition, as the plans are carried out, the person's or family's financial progress is monitored and/or reassessed.
Each of the steps above may be performed with the help of accounting and/or financial planning software or professionals using the same or similar software. For example, information (such as income, expenses, liabilities, and assets) about an individual and/or family unit is entered into an accounting program. The program may then query the individual and/or family unit for a set of financial goals, as well as make recommendations regarding choosing financial goals. The program may also generate one or more plans enabling the individual and/or family unit to reach the financial goals. Once a plan is selected, the program may also monitor the progress of the individual and/or family unit in carrying out the plan. The program may further reassess the financial situation, progress, goals, and plan(s) of the individual and/or family unit over time and in light of events that financially impact the individual and/or family unit.
To track the financial progress of the individual and/or family unit, the accounting and/or financial planning software may download the financial information from one or more financial institutions. The financial information may include account types, account balances, and/or any financial transactions associated with the respective accounts. Often the financial transactions are stored in a proprietary format by the financial institution.